Is the Government getting out of the Mortgage Business?
Showtime for Fannie and FreddieBy Alyssa Katz Mar 23rd 2010 @ 12:15PM
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A A A They’re just starting now?
More than a year ago, the Obama administration promised to lay out the future for Fannie Mae and Freddie Mac, the two mortgage finance enterprises the U.S. government took over in 2008, after massive losses and a shareholder stampede to sell left them insolvent. Today, Treasury Secretary Timothy Geithner came to Capitol Hill today to unveil that future.
What will Geithner do, nearly two years after the financial system crumbled, leaving the two hobbled agencies to prop up the mortgage markets? Will Treasury get rid of the agencies entirely, and get government out of the mortgage business, as some conservatives have demanded? Or maybe follow the National Association of Realtors’ proposal and the keep the two giants going as government agencies, since along with Ginnie Mae they’re really the only reason it’s possible to get a mortgage right now? Something in between?
We’ll have to wait a little longer for official answers.
Geithner told the House Financial Services Committee this morning that the Obama administration is now going to study what to do, over the next several months.
The Treasury Secretary started out nervous and guarded. But as members of Congress pressed him, Geithner revealed plenty of details of the administration’s agenda for the future of Fannie and Freddie, and gained confidence as he went on. The rougher committee Republicans got with Geithner, the more relaxed he seemed to get, and by the one sternly demanded to know why Treasury hadn’t gotten around to dealing with Fannie and Freddie sooner, Geithner could barely keep from laughing.
Bottom line: the Obama administration has no plans to exit the mortgage business. And in some important ways, it wants the mission of Fannie Mae and Freddie Mac to live on.
The administration wants to keep government in play to make sure mortgages are widely available, in good times and bad. “This is the central existential question as we contemplate reform,” Geithner said. “There is a quite strong economic case and public policy case to have some kind of guarantee” — in other words, some role for the U.S. Treasury in backing home mortgages that otherwise wouldn’t be available.
Geithner kept his opening remarks to a bare minimum – pledging a “more stable funding source to help Americans buy a home,” “broad access to mortgage credit,” to “finance rental housing,” and to make sure in the process that taxpayers don’t finance shareholders’ excessive profits.
As for simply getting rid of Fannie Mae and Freddie Mac, “I don’t think there’s a credible argument that we should abolish these institutions today,” Geithner told Rep. Maxine Waters (D-CA) “That would not be responsible.”
Instead, Geithner promised, a new mortgage finance system would keep what worked about Fannie and Freddie – the support for stable, inexpensive mortgages for a large number of home buyers, which he said helped make the U.S. mortgage system “in many ways the envy of the world” until the late 1990s, when private competitors and Congress pressured the agencies to lower their standards. At the same time, he wants to ditch the failed model of having the U.S. government sponsor profit-making companies.
“We need to end this awkward combination of private shareholders with implicit government support,” said Geithner. “It was a big mistake.”
House Republicans piled on to ask whether the U.S. needs government in the mortgage business at all, though Kansas Rep. Dennis Moore did their cause no favor by holding up Ireland and Portugal as examples of nations with strong homeownership despite not having government backing for mortgages.
Massachusetts Democrat Michael Capuano raised the stakes on them, taking a page from abortion politics. “I might be tempted to scream that some group of people are homeownership killers,” said a theatrically emotional Capuano, “if they get rid of Fannie and Freddie.”
Home Sales Sink Again
Home Sales Sink, AgainBy Bendix Anderson Mar 23rd 2010 @ 12:45PM
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A A A Time is running out for the federal homebuyer tax credit — but homebuyers weren’t rushing to take advantage of the $8,000 deal this February.
Sales of existing homes fell for the third straight month in February, sagging to 5.02 million. That’s the lowest rate of sales since April of last year, according to the National Association of Realtors.
Blame the snowstorms that buried much of the Atlantic Coast. “Some closings were simply postponed by winter storms,” said Lawrence Yun, NAR’s chief economist. The storms could also have a lingering effective on next the numbers for March. “Buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity.”
The report is no surprise — the dismal figures are in line with the predictions of a panel of economists gathered by Bloomberg News. They forecast existing home sales were forecast to fall to a 5 million annual rate, according to the median estimate of 74 economists in a Bloomberg News survey. Projections ranged from 4.75 million to 5.2 million, after an initially reported 5.05 million rate in January. The economists blame high unemployment for keeping people from shopping for homes.
However, the job market was also terrible last fall — that didn’t stop the homebuyer tax credit from creating a mini housing boom as it reached its earlier expiration and buyers hurried to get in on the deal.
“The key test for a durable recovery comes in the next few months as the tax credit deadline approaches,” Yun said. “If we see a surge in home buying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure a broad home price stabilization.”
Second Chance for Loan Modifications
Second Chance for Loan ModificationsBy Bendix Anderson Mar 23rd 2010 @ 1:15PM
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A A A Turned down for a mortgage modification? You now get a second chance.
To stem a new wave of foreclosures, the federal government is spreading the safety net to catch home loans in trouble. The latest move comes from mortgage giant Fannie Mae, which now requires all of its loan servicers to consider “Alternative Modifications” to borrowers who have asked applied for help under the federal Home Affordable Modification Program (HAMP), but who have not been able to qualify for permanent modifications, according to the mortgage giant.
The program has long been plagued by delays and red tape, with servicers complaining that borrowers failed to provide the required documentation, and borrowers and community groups accusing servicers of losing or mishandling the information.
Fannie Mae’s alternative modification is effectively a second chance for borrowers to permanently modify their loans and reduce their payments for up to five years, even if they’ve been mired in disputes with the mortgage companies over their paperwork.
Since Fannie Mae has guaranteed these loans, it is on the hook for any losses to these loans due to foreclosure. However, since the loans already seem to be headed to foreclosure, Fannie has little to lose by modifying the loans, provided the borrowers have so far been able to make their reduced payments under their trial HAMP modifications.
Many commentators and economists still predict that a wave of millions of new foreclosures will wipe out last year’s wobbling recovery in home prices, pushing prices down again. In particular, economists worry the federal effort has only delayed hundreds of thousands of foreclosures — homes that they say are likely to be seized later this year.
Since it was created last year as part of the Stimulus package, the HAMP program has temporarily modified loans terms for more than a million homeowners, often lowering monthly payments by as much as $500 a month. But as 2009 came to a close, only than 66,000 of these trial loan modifications had been made permanent, according to the Treasury.
The feds have been fighting back. By the end of February, of the million borrowers who had started the HAMP process, 170,000 had received permanent modifications of their loans. Another 91,800 had been approved for permanent loan modification.
Only 88,663 trial modifications had been canceled — but with hundred of thousands of trial modifications still waiting to be finalized, more cancellations must be coming.
So how does the alternative program work? A borrower that entered into a HAMP trial period plan prior to March 1, 2010 will be considered for the Alt Mod program as long as the servicer submits the case for approval by August 31, 2010.
The qualify the borrower needs to have made all the payments required by their HAMP trial period. If the balance of the loan outstanding is more than 80 percent of the value of the home, then income verification is not required for the alternative modification.
In April, the Treasury will also launch its Home Affordable Foreclosure Alternatives program, which will provide incentives to servicers to allow short sales and deeds-in-lieu of foreclosure. Short sales let homeowners to sell homes worth less than the balance due on their loans. The lender receives the proceeds of the sale, and forgives the rest — which is still a much better deal for the lender than trying sell the home at auction.
New Home Sales Hit Record Low, Again
New Home Sales Hit Record Low, Again!By Bendix Anderson Mar 24th 2010 @ 1:00PM
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A A A If you were trying to sell a house in February and got no offers, well, you weren’t alone. In February, sales of new homes hit their lowest point ever, or at least since the Commerce Dept. started keeping count in 1963.
New homes sold at a seasonally adjusted annual rate of 308,000 a year in February, according to the Commerce Dept. That’s down from 315,000 in January. It’s also lower 354,000 in February 2009, twelve months before. If you remember, February of last year seemed like a terrible time for new home sales.
Back at the peak of the building boom, in October 2005, new homes sold at an annual rate of 1.4 million. That’s more than four times the current rate.
Economists blame the snowstorms last month, which kept potential home buyers from shopping for houses. The new home sales report represents the rate of new signed contracts to buy homes — it makes sense that terrible weather would keep potential buyers from taking their last look at a house before making an offer. Sales fell most steeply in the regions buried most deeply in snow: the Northeast saw drops of 20 percent, while Midwest sales slid by 18 percent. In contrast, sales fell by just 5 percent in the South and rose 21 percent in the West.
Of course, we can all remember a time when home buyers would have driven through a rain of fire to make an offer thousands of dollars above the asking price for their dream home. Now the opposite seems to be true: Even an $8,000 federal home-buyer tax credit that expires April 30 can’t rouse potential home buyers from their cozy seat by the fire.
The good news is that home prices rose slightly, reflecting some confidence from buyers and sellers that the houses have value, even if few people are bidding. Median home prices rose to $220,500, about 6 percent from January and up more than 5 percent from the year before, according to the Commerce Dept.
Bank of America to Reduce Mortgage Principal
Bank of America to Reduce Mortgage PrincipalBy Charles Feldman Mar 24th 2010 @ 11:15AM
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A A A For struggling homeowners, it was a blockbuster. Bank of America on Wednesday announced a new program aimed at reducing mortgage principal for homeowners that owe more than 120 percent of their home’s value. Yes, you heard right: The bank will actually reduce principal owed for underwater borrowers and those with so-called negative amortization loans.
That’s long been viewed as the Holy Grail for helping underwater homeowners, but banks have been reluctant to do more than lower interest payments. The initiative, according to BofA, would aim to bring loan values back down to 100 percent of the home’s value over five years.
The BofA announcement marks a startling shift for the beleaguered bank, which has been dogged by complaints that it has been unresponsive to homeowners looking for help with mortgages they can no longer afford. The bank has also been stung by a string of embarrassing incidents where it has wrongfully seized homes for foreclosure.
Indeed, a lawsuit filed by homeowners in Washington on Tuesday charges that BofA “systematically slows or thwarts access to Troubled Asset Relief Program (TARP) funds by ignoring homeowners’ requests to make reasonable mortgage adjustments or other alternative solutions that would prevent homes from being foreclosed,” according to a press release announcing the suit.
Nothing like a good lawsuit to bring about radical change!
Whatever the motive, this is a very significant development that, if other major lenders follow, could actually help nurse the critically ill real estate market back to health — not to mention provide relief to thousands of homeowners.
The lawsuit points out that Bank of America services more than 1 million mortgages that qualify for financial relief under the government’s Making Home Affordable program (HAMP) loan modification program, but so far has granted permanent modifications to fewer than 13,000.
Still, as we all know by now, HAMP has been less than a smashing success. HousingWatch has written often that the only real hope for a full recovery of the housing market would be to reduce the principal of some mortgages — not just interest payments, which tend to simply put off foreclosure to a date not too far down the road.
Banks lobbied strongly for Congress to abandon any plans to change bankruptcy laws to allow judges the flexibility to reduce principal on primary homes during bankruptcy proceedings — a process known as a cramdown.
Perhaps sensing that with the passage of health care reform and efforts to bring about meaningful change in banking regulations, Bank of America is apparently taking this initiative to, in my view, head off any future attempts to change the bankruptcy laws. This way, the bank gets to decide who gets a principal reduction and not some federal judge.
The BofA program will offer an “earned principal forgiveness” up to 30 percent in two stages. The program will be offered to borrowers of certain subprime, Pay-Option and prime two-year hybrid mortgages that qualify for BofA’s National Homeownership Retention Program (NHRP), created in 2008, and are at least 60 days delinquent with current loan-to-value (LTV) ratios of 120 percent or higher.
According to Bank of America, the program entails:
•An interest-free forbearance of principal that the homeowner can turn into forgiven principal over five years resulting in a maximum 30 percent decrease in the loan principal balance to as low as 100 percent LTV.
•In each of the first five years, up to 20 percent of the forborne amount will be forgiven annually for borrowers that remain in good standing on their mortgage payments.
•Forgiveness installments for the first three years are set at the 20 percent level.
•In the fourth and fifth years, the amount of forgiveness will be dependent upon the updated value of the property, so that the LTV will not be reduced below 100 percent through principal forgiveness.
The program, says the bank, will be considered “when it provides a more positive outcome under the net present value test than under the standard HAMP guidelines.”
Mortgage Rates on a Roller Coaster Ride
Like yesterday, early morning weakness in the MBS market led to slightly worse rate sheets at the beginning of the day. However as the day progressed, MBS prices rallied enough to allow many lenders to reprice for the better. This brought us back to where we ended the day yesterday. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. I still say you should be locking ahead of the employment report coming Friday. If the numbers are better than expected or even not as bad as expected, rates will likely move higher. FAST. If the report comes in as expected or worse, I do not feel lenders will be passing along much lower mortgage rates. Nothing to gain, much to lose in my opinion. Still locking. BY: VICTOR BUREK
RatesAreHot.com 